What Will Interest Rates Do Over The Short To Medium Term?

To what was no surprise to consumers and industry experts alike, the Reserve Bank left rates on hold since August 2016!

What was interesting was the commentary from the most accurate interest rate predictor - Bill Evans from Westpac.

Mr. Evans said:

For 2019, forecast growth has been revised down from 3.25% to 3%, and 2020, from 3% to “a little less” due to slower growth in exports of resources. It is important that this 3% growth forecast is above the assessed trend rate of 2.75%, and the implied 2020 forecast is likely to be around the trend.

If a central bank is forecasting above-trend growth, then it is highly unlikely to adopt an easing bias, and indeed the chances are still likely that the Governor will persist with his assessment that even though rates are likely to remain steady for some time, the next move is likely to be up.

With these revised forecasts, the RBA is clearly less comfortable with its previous positive outlook. Its growth forecasts remain significantly above Westpac’s own view. With our forecasts of 2.6% growth in 2019 and 2020, it still seems that the more likely outcome will be for steady rates, even if as we expect, the RBA will eventually have to adopt growth forecasts much closer to Westpac’s current view.

Westpac confirms its long-held forecast that the RBA cash rate will remain on hold in 2019 and 2020.

This will continue to provide great stability for those of us with home loans, as well as the property market, with no major shocks priced in.

Have a great weekend and catch you next week!

Troy Gunasekera

National Manage

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Have a great weekend and catch you next week!

Warm Regards,

Troy